British pound gains on fiscal U-turn, yen weakens past 145 to the dollar

SINGAPORE/LONDON, Oct 3 (Reuters) – The pound rose on Monday after Britain canceled its plan to cut the top rate of income tax while the yen weakened beyond of 145 to the dollar, close to the level where the Japanese authorities intervened last month.

The pound hit a one-week high of $1.128 after media reports of a reversal, its highest level since September 22, the day before Britain’s Finance Minister Kwasi Kwarteng made the announcement. crash the markets with a new “growth plan” to cut taxes and regulation. , financed by vast public loans.

After paring its gains, the British pound was last up 0.3% at $1.1199.

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“We understand and we’ve listened,” Kwarteng said of the rollback of a plan to cut the 45% tax bracket, a controversial part of the package that drove the pound to a an all-time low of $1.0327 and sent gilts spiraling higher. , prompting the Bank of England to intervene. find out more find out more

“It’s clear the pound has done better on the news but there are still a lot of questions left, ultimately the 45p tax rate was just a small part of the tax cuts announced unfunded,” said Jane Foley, head of FX strategy at Rabobank.

“The question remains is this enough? The answer will be clear in a few weeks when the Bank of England’s measures come to an end. UK assets, the pound and gilts are not out of the woods yet, and the UK government has a lot to do to regain credibility.”

The Japanese yen fell to 145.40 to the dollar, weakening past 145 for the first time since September 22, when authorities stepped in to support the currency.

The dollar last rose 0.22% to 145.06 yen as Asian trading was hurt by holidays in China, South Korea and some Australian states.

“Any time (dollar/yen) hits 145, it gets people excited. But sometimes it’s the size of the move that matters,” said Christopher Wong, currency strategist at OCBC.

“That said, we remain vigilant and do not rule out a stealth yen intervention if the magnitude of the yen’s decline increases again, perhaps when it breaks above 146, using current levels as a benchmark.”

Monday’s tumble came as Finance Minister Shunichi Suzuki said Japan was ready to take “decisive” action in the foreign exchange market if excessive movements in the yen persisted. Read more

The yen has weakened due to Japan’s policy of keeping interest rates on hold at a time when they are rising elsewhere, and after much speculation authorities last month intervened in the markets, spending a record 2.8 trillion yen ($19.7 billion) to back the currency. Read more

The euro was slightly lower at $0.97965, with expectations for another rate hike from the European Central Bank this month following a searing inflation reading, raising fears that the economy not fall into a recession.

Friday’s data showed eurozone inflation beat forecasts to hit a record high of 10.0% in September, above expectations of 9.7%.

The Australian and New Zealand dollars gained ground ahead of rate hikes expected by their central banks this week with the Aussie up 0.4% at $0.6437 and the Kiwi up 0.9% at $0.5645.

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Reporting by Rae Wee; edited by Clarence Fernandez and Jason Neely

Our standards: The Thomson Reuters Trust Principles.

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